8-K: Forge Global Reports Mixed Q3 Results Amidst Platform Innovations

Forge Global's Q3 2024 results show a 4% increase in total revenue less transaction-based expenses year-over-year, alongside a 44% increase in trading volume, while also experiencing increased losses.

Summary

• Forge Global reported a total revenue, less transaction-based expenses, of $19.1 million for Q3 2024, a 4% increase compared to the same quarter last year, but down from $22.0 million in the previous quarter.
• Marketplace revenues, less transaction-based expenses, reached $8.6 million, a 21% increase year-over-year, but down from $11.4 million in the previous quarter.
• The company's trading volume was $338.1 million, a 44% increase compared to the year-ago quarter, but down from $426.3 million in the previous quarter.
• Forge experienced an operating loss of $20.9 million, a net loss of $18.8 million, and an adjusted EBITDA loss of $11.4 million, all of which increased compared to the previous quarter.
• Net cash used in operating activities was $5.8 million, a significant improvement from $14.4 million in the previous quarter.
• The company's cash and cash equivalents balance stood at $114.5 million as of September 30, 2024.
• The net take rate was 2.6%, down from 2.7% in the previous quarter and 3.0% in the year-ago quarter.
• Total custodial accounts reached 2.28 million, up from 2.21 million last quarter, and total assets under custody remained stable at $16.6 billion.
• Forge launched Forge Price, a daily derived price for approximately 250 pre-IPO companies, and identified the Private Market Magnificent 7.

Sentiment

Score: 4

Explanation: The document presents mixed results with positive growth in some areas but increasing losses and a decrease in net take rate. The launch of new products is a positive sign, but the overall financial performance is concerning.

Positives

• Forge experienced a significant year-over-year increase in trading volume, demonstrating strong market activity.
• The launch of Forge Price is a positive step towards increasing pricing transparency in the private market.
• The identification of the Private Market Magnificent 7 highlights the company's expertise in the private market.
• Net cash used in operating activities improved significantly compared to the previous quarter.
• The number of custodial accounts continues to grow, indicating a strong customer base.

Negatives

• Total revenue, less transaction-based expenses, decreased compared to the previous quarter.
• Marketplace revenues, less transaction-based expenses, decreased compared to the previous quarter.
• The company's operating loss, net loss, and adjusted EBITDA loss all increased compared to the previous quarter.
• The net take rate decreased to 2.6%, down from 2.7% in the previous quarter and 3.0% in the year-ago quarter.
• Forge Trust Custodial Cash decreased to $470.0 million, down from $495.0 million last quarter and $518.0 million in the year-ago quarter.

Risks

• The company is experiencing increasing losses, which could impact its financial stability.
• The decrease in net take rate could affect future revenue generation.
• The decrease in Forge Trust Custodial Cash could indicate a potential reduction in client activity.
• The company's reliance on third-party data for its pricing model could introduce inaccuracies.
• The private market is subject to volatility, which could impact Forge's trading volume and revenue.

Future Outlook

The company estimates 186 million weighted average basic shares outstanding for the quarter ending December 31, 2024, which will be used to calculate earnings per share in a loss position.

Management Comments

• Kelly Rodriques, CEO of Forge, stated that the company remained focused on technology and product innovations that expand access and improve the experience for all participants in the private market.
• The CEO also highlighted the continued investment in the Forge Next Generation Platform and the launch of Forge Price as key initiatives.

Industry Context

Forge Global operates in the private securities marketplace, a sector that has seen increased interest as more companies remain private for longer. The launch of Forge Price and the identification of the Private Market Magnificent 7 are attempts to bring more transparency and structure to this traditionally opaque market.

Comparison to Industry Standards

• Forge's trading volume growth of 44% year-over-year is a positive sign, but it is important to compare this to other private market platforms such as CartaX or EquityZen to see if this growth is in line with industry trends.
• The net take rate of 2.6% is a key metric, and it would be beneficial to compare this to the average take rates of other similar platforms to assess Forge's competitiveness.
• The adjusted EBITDA loss of $11.4 million is a concern, and it is important to see how this compares to the profitability of other private market platforms, many of which are also not yet profitable.
• Forge's total assets under custody of $16.6 billion is a significant figure, but it is important to compare this to the assets under custody of other major players in the private market to understand Forge's market share.

Stakeholder Impact

• Shareholders may be concerned about the increasing losses and decreasing net take rate.
• Employees may be affected by the company's financial performance.
• Customers may benefit from the new Forge Price product and increased transparency.
• Suppliers and creditors may be impacted by the company's financial health.

Next Steps

• Forge will host a webcast conference call on November 6, 2024, to discuss the financial results and business highlights.
• The company will file its Quarterly Report on Form 10-Q on or around November 6, 2024.

Key Dates

Keywords

private securities, marketplace, trading volume, revenue, Forge Price, custodial accounts, EBITDA, pre-IPO, financial results, net loss